Is the IPO Market Dead? Here's How to Plan Your IPO Investments...

It was Tuesday, the 21^st of September 2021. I sat there all prepared with my actions memorised by heart.

As soon as the clock hit 9:15 AM, I took a deep breath and just applied for an initial public offering (IPO).

Then came 29 September 2021. The clock was ticking, tension was at a peak, and I was waiting eagerly.

I knew there were many competitors, but I could not do anything. At last, I received the mail I hoped I wouldn't.

I was among the unlucky ones who could not get allotment in the IPO.

Two days later on 1 October 2021, I was hoping to get some satisfaction. But as soon as I saw the stock name at 10 AM, I drowned in a heap of disappointment.

The stock made a bumper listing and soared a massive 171% on listing day.

This is the series of serious events that transpired when I applied for the IPO of Paras Defence and Space Technologies.

As I mentioned earlier, I was one of those many unlucky ones to whom shares were not allotted.

The IPO of Paras Defence was 374 times oversubscribed! This is the first time in history when an IPO was oversubscribed to this extent.

The debut of Paras Defence and Space Technologies was also a big hit on the bourses. The company's shares were listed at Rs 475. This is 171% higher compared to its issue price.

The whole year of 2021 was like this for the IPO market. I remember people all around me talking on and on about how IPOs are a must when it comes to investment and how they offer quick gains.

2021 was indeed a historic year for IPOs. In 2021, 63 companies came out with their IPOs and raised around Rs 1 tn from the Indian markets. This is the highest ever amount raised in a single year.

It was predicted the IPO market will continue with the same speed even in 2022. But did that happen?

Read on to find out...

Indian IPO market in 2022

2022 was expected to be a very good year for IPOs. Especially with mega IPOs like LIC around the corner.

But both, the number of IPOs this year and the proceeds of the same, have gone down in 2022. In the first quarter of 2022, only 16 companies went public, however in 2021, during the same period, 23 companies went public.

The total proceeds raised in 2022 in the first quarter are 60% lower compared to 2021 during the same time.

Hence, it is clear that companies are cautious and not coming out with their IPOs.

For instance, Pharmeasy's IPO is approved and was all set to come out, but it has not gone the IPO way yet because of the volatile markets.

In fact, even the companies that did come out with IPO in 2022 reduced their IPO size. Like LIC, Delhivery, Adani Wilmar, etc.

A reduction in IPO size indicates lower demand from investors.

Hence, it is clear that the IPO markets are dead for the time being.

Let us talk about the why this has happened...

Why is the Indian IPO market dead?

#1 Volatile markets

In 2021, Indian share markets (and equity markets across the globe) were surging, riding on easy liquidity.

In October 2021, India's benchmark BSE Sensex reached its highest level at 62,245. The all-time high level for Sensex was short-lived, and it soon came crashing down.

2022 followed in the footsteps of late 2021. The markets have been volatile for the whole of 2022. Share prices of most of the companies have fallen.

The prices that were up because of easy liquidity are coming down as the global liquidity situation tightens.

Hence, investors are discouraged from investing in new businesses. If the existing businesses face low-profit margins, then how will a newly listed company survive?

#2 Russia-Ukraine war

War only brings destruction. The destruction is not limited to loss of life and blood; commerce and economy are also destroyed.

In fact, the commercial effect of the war has a ripple effect. The effect of war is first felt in the war zone, and then the effect transcends into all those countries with which the waring countries have a commercial connection.

Ukraine and Russia are key exporters. Hence, when their commercial operations were hampered due to war, the prices of the commodities which they exported rose globally.

Thus, reducing the profit margins for most companies.

Rising commodity prices add insult to injury on top of the already high inflation. People were trying to patch up their personal finances during inflation. Sp they moved away from IPOs.

Hence people turned their back on IPOs.

#3 Profit Booking by FIIs

FIIs have been selling in the Indian share markets big time. They have sold investments of around Rs 2.1 tn so far in India.

FIIs have started harvesting the gains from Indian markets and are moving to export countries like Brazil, Indonesia, etc.

This behaviour depicts that presently, FIIs do not think their investments can generate higher returns in India. Hence, they are moving away from India.

As a result, individual investors are also moving away from investing in new business, thus moving away from IPOs.

#4 Rising Interest Rates

To control the rising inflation, central banks all over the world have been announcing a rise in interest rates.

In 2022, RBI has been increasing interest rates. The US Fed and Central Bank of Europe have also increased interest rates.

Rising interest rates mean higher and assured returns on treasury bonds. Thus investors' preference has shifted to the bond market from the IPO market.

It is important to understand that IPO markets are a subset of the broader share markets. Hence IPO market moves in tandem with the share markets.

Thus, the activity in IPO market falls in the same manner and pattern as the share market for the same reasons.

So it's clear the IPO markets are dead; however, an investor should not completely ignore the IPO markets.

This is because the broader markets are showing signs of revival, and this may be reflected in the IPO markets too.

Hence an investor should carefully plan his/her investments when it comes to IPO.

How to plan your IPO investments

An investor should make a complete assessment of the offer made by the company. Here is a list of that he should keep in mind while investing in IPOs.

#1 Historical Performance

They say whenever you want to move forward with investment in a company, look back.

Whenever an investor is planning to invest in IPO, he/she should analyse how a company has performed in the past on the financial front.

An investor should check if the company has performed well in the past. If it could not follow a positive growth rate before it was listed, then having growth after its listing is difficult.

An investor should assess the offer by looking at historical financial statements. Calculate whether the company and its issue price are overvalued.

Pay attention to not just financial performance but also look at the operational efficiency of the company.

#2 Future Prospects

The investor should not just look but also look forward.

An investor should analyse whether the company has a viable business that can continue in the future. He should look at whether the company can improvise its operations.

Ask several questions. How can the company survive in the face of competition in the industry? Or when there are no major existing competitors, will it be able to withstand the new entrants?

He should seek to know how the company intends to utilise the funds raised through IPO. Also, assess whether the future use of the said funds is in alliance with the future vision of the company.

Doing this kind of second order thinking always helps.

#3 Look at Management

After looking at the operations of the company, you should look at those who run the operations.

Give a good, successful business to a poor management team, and they will turn all the greens into reds.

Give a bad, failing business to a good management team, and they will manage to turn around the loss-making business into a profitable one or at least reduces the losses.

The man behind the curtain decides how the show will run on the stage.

Hence, an investor should see that the company has experienced managers who believe in core values and a dynamic team that works towards innovation.

#4 Market Scenario

After an investor has looked in to the company and the management, he should look around the company too.

Once an investor has studied the company and its management, he should study the market scenario. He should analyse whether the company will flourish in the current market scenario.

If you want to earn by listing gains, you should analyse if the current market scenario will lead to a premium or discount on listing.

An investor should carefully consider his investment horizon before investing in IPO, because the investment horizon may change if the market scenario is averse to his plans.

Next course of action...

IPO markets are dead, but an investor should always watch out for good IPOs. Companies will always need more funds, and it will always come to the public for funds.

The current market trends may have made IPOs unattractive, but this situation will not last forever. As the broader markets and the inflation situation normalise, IPO markets will again become attractive.

In fact, investing in IPOs in dead markets may turn out profitable.

If a good company comes out with IPO in a dead market, then, the company will have to offer its shares at a reasonable price.

As soon as the markets recover, the company's share price will rise, which will benefit the investor.

This is rare but possible because companies would wait for a better market scenario to ask for money.

Here is a list of big upcoming IPOs. Take a look and see if any of them can become your success story.

Upcoming IPOs

Company Name	Date of Filing	Date of Approval	Issue Amt (Rs Cr)
ORAVEL STAYS LTD.	30/09/2021	Not Available	8,430
AADHAR HOUSING FINANCE LTD.	24/01/2021	05/05/2022	7,300
API HOLDINGS LTD.	10/11/2021	17/02/2022	6,250
EBIXCASH LTD.	10/03/2022	Not Available	6,000
BHARAT FIH LTD.	24/12/2021	Not Available	5,003.8
MACLEODS PHARMACEUTICALS LTD.	15/02/2022	20/05/2022	5,000
TVS SUPPLY CHAIN SOLUTIONS LTD.	14/02/2022	04/05/2022	5,000
EMCURE PHARMACEUTICALS LTD.	18/08/2021	08/12/2021	4,000
FABINDIA LTD.	24/01/2022	30/04/2022	4,000
GO AIRLINES (INDIA) LTD.	14/05/2021	26/08/2021	3,600
NAVI TECHNOLOGIES LTD.	14/03/2022	Not Available	3,350
DROOM TECHNOLOGY LTD.	12/11/2021	Not Available	3,000
FIVE-STAR BUSINESS FINANCE LTD.	10/11/2021	07/01/2022	2,752
GEMINI EDIBLES & FATS INDIA LTD.	09/08/2021	23/11/2021	2,500
KFIN TECHNOLOGIES LTD.	01/04/2022	Not Available	2,400
JOYALUKKAS INDIA LTD.	28/03/2022	Not Available	2,300

Source: Equitymaster

Company Name	Date of Filing	Date of Approval	Issue Amt (Rs Cr)
ORAVEL STAYS LTD.	30/09/2021	Not Available	8,430
AADHAR HOUSING FINANCE LTD.	24/01/2021	05/05/2022	7,300
API HOLDINGS LTD.	10/11/2021	17/02/2022	6,250
EBIXCASH LTD.	10/03/2022	Not Available	6,000
BHARAT FIH LTD.	24/12/2021	Not Available	5,003.8
MACLEODS PHARMACEUTICALS LTD.	15/02/2022	20/05/2022	5,000
TVS SUPPLY CHAIN SOLUTIONS LTD.	14/02/2022	04/05/2022	5,000
EMCURE PHARMACEUTICALS LTD.	18/08/2021	08/12/2021	4,000
FABINDIA LTD.	24/01/2022	30/04/2022	4,000
GO AIRLINES (INDIA) LTD.	14/05/2021	26/08/2021	3,600
NAVI TECHNOLOGIES LTD.	14/03/2022	Not Available	3,350
DROOM TECHNOLOGY LTD.	12/11/2021	Not Available	3,000
FIVE-STAR BUSINESS FINANCE LTD.	10/11/2021	07/01/2022	2,752
GEMINI EDIBLES & FATS INDIA LTD.	09/08/2021	23/11/2021	2,500
KFIN TECHNOLOGIES LTD.	01/04/2022	Not Available	2,400
JOYALUKKAS INDIA LTD.	28/03/2022	Not Available	2,300

For the list of all upcoming IPOs click here

Before we sign off, do check out the below video where Richa Agarwal talks about what to look for in an IPO.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...